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How are the industry and the market evolving?

2020-11-14   

Globally, the automotive industry has recovered from the economic crisis. Industry profits in 2012 (EUR 54 billion) were much higher than in 2007 (EUR 41 billion), the last precrisis year, and the prognosis for future growth is even better. By 2020, global profits could increase by another EUR 25 billion, to EUR 79 billion. That is good news, but the benefits will not be distributed equally across all geographies or all types of cars. Instead, some regions and segments will do much better than others. What is most striking about the recent past is how profoundly the source of profits has shifted. In 2007, the BRICs and RoW accounted for 30 percent of global profits (or EUR 12 billion). In 2012, that share rose to nearly 60 percent (EUR 31 billion), as sales in these regions rose 65 percent and outpaced growth in Europe, North America, Japan, and South Korea (Exhibit 1). More than half of this growth came from China (EUR 18 billion). Europe went in the other direction: in 2007, its automotive industry recorded profits of EUR 15 billion. By 2012, that profit had become a loss of EUR 1 billion. There are two main reasons for the decline. First, fewer people bought new cars. Across the region, the number of new registrations declined by more than four million units over this period, and car sales today are at levels last seen in the early 1990s. Second, Europe’s well-developed automotive industry suffers from overcapacity; fierce competition is keeping prices (and therefore profits) down. Japan and South Korea are also looking far from robust. Both markets suffered from the economic crisis, and Japan endured another hit in 2011, with the tsunami-earthquake disasters in March. But in 2012, both countries saw their first profitable year since 2008. The road to 2020 and beyond What’s driving the global automotive industry? Automotive profits now exceed precrisis levels, but the sources have changed 9 16 16 23 12 10 5 18 26 31 -11 6 41 +34% Japan and South Korea Europe North America BRIC and RoW 2012 54 -1 1 11 43 -6 7 10 33 -4 3 09 5 -6 08 2 -3 6 2007 5 15 SOURCE: IHS Automotive; McKinsey 1 Profits captured by top 17 OEMs Global passenger car profit development by geography1 EUR billions Exhibit 1 8 In Japan, exports and production rose and domestic sales also increased sharply. But this trend does not look likely to be sustained, as car purchase subsidy programs expire. Sales in Japan have fallen so far in 2013, and projections indicate a continued drop. By contrast, North America is in good shape: profits improved from EUR 9 billion in 2007 to EUR 23 billion in 2012. Sales in North America reached 17 million units in 2012 – the most in five years – and are rising again this year. The product mix has also started to shift to higher-value pickups and SUVs. Finally, following some painful balance sheets and labor and non-cost restructurings, the cost structure of leading OEMs has significantly improved, providing a basis for enhanced profitability. Not only did emerging markets (the BRICs and RoW) account for almost 60 percent of worldwide automotive profits in 2012, these regions are poised to significantly outpace growth in established markets over the next seven years. Profit in the BRICs and RoW is projected to grow more than three times as fast as in established markets. By 2020, emerging markets will account for approximately two-thirds of the total automotive profit, and China will be the driving force (Exhibit 2). The vast majority of the estimated additional profits (EUR 25 billion) will come from steady sales growth (an estimated 3.8 percent a year, including 4.4 percent for the premium segment). The sources of those profits, however, will be rather lopsided. McKinsey’s research indicates that China will account for a little more than half – EUR 13 billion, including EUR 9 billion from the premium segment alone. Other emerging markets will add about EUR 6 billion, while established markets will likely contribute only EUR 4 billion in additional profits, almost all of that from North America. 

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